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Ask HN: Big company approached our stealth startup – what to do?

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31–40 of 84 posts

Re: Ask HN: Big company approached our stealth startup – what to do?

#31
There's some good advice here, but so far no one has said the most important thing, which is to clarify for yourselves what your other best option is.

(In MBA jargon, your "BATNA" -- Best Alternative to a Negotiated Agreement).

This is not just theory, it's dealmaking 101. You simply have no leverage to get what you want (fast closure, price, etc) unless you have an external forcing function you can credibly threaten to move forward with -- one that you must be prepared to accept if they call your bluff.

Based on circumstances -- it could be a term sheet, a public launch, a partnership with someone threatening to BigCo, etc. But figure out what it is, put a time frame on it, and make them aware of it.

Based on your questions, I'd also suggest bringing an advisor in who knows what they are doing to help you sort through what you should and should not reveal at this point. (Why would they want to review your code if it's an acquihire??)

Re: Ask HN: Big company approached our stealth startup – what to do?

#33

1. If the company has a track record of acquihires, talk to one of these companies. If they have not got a track record of working with startups, it is very rare that they can get it right the first time. 2. Reduce the number of people on the other side interacting with you. In large companies too many people jump on these types of opportunities and will burn a lot of your time. Identify one senior person from the co…

If the company has a track record of acquihires, talk to one of these companies. I don't understand this statement. Doesn't that mean the "acquihired" are part of $BIGCOMPANY?

Sorry, I wasn't precise. I meant talking to the individuals formerly in the acquired companies and finding out how their product and how they themselves fared.

Re: Ask HN: Big company approached our stealth startup – what to do?

#34
Maybe I haven't read it clearly enough. But where do you state what you want? Nobody can really tell you what you should do if you don't know yourself what you want. Getting a lawyer is pretty much the only reasonable response I've seen so far, because it can never hurt. But even then it is important that you know what you want, to find a good lawyer for your cause, and because a lawyer is a contractor himself and like you he would like to know what is customer wants before he can be really efficient. The second advice that always works is that you never deal with "The Big Corp" but with a guy or a team working in that big corp. While the corp might be reputable the guy might not be (and the other way around, though less likely). Learn to know these guys, not the corp. Both these tips (lawyer, learning to know people not roles/organisations) always works in every really important daily situation, not just start-ups, btw.

Do you want to get bought? Then start thinking about a fair price of your company. And start about an incredibly big number you would be happy to retire with. If you can find a result in between these numbers you will probably be doing not too badly. If you don't get close to either number, then you might change to the next goal.

Do you want to grow bigger to sell out bigger? Then look for a cooperation but keep your independence as much as possible. That includes keeping your company value secret (which is often more likely your market research than your source code).

Do you want to change the world? Well then try to find out what and how much they are willing to do. If they don't care about the cause, say "bye".

Do you just want to experiment, learn new stuff, keep your freedom? Then have a look about how much of that is left when they integrate you. You can't find out about this in a meeting room discussing with them, because they'll promise you anything in that regard. Look how the other people work in that corp. Are they creative, smart, free-loving animals, or are they cubicle workers who love to blame everything that happens around them on middle management? That's what you can expect after 1-2 years of integration.

Do you maybe actually hate the undefined future and hours of unlimited work of a start-up? This might be the best chance for you to get out. Getting integrated means you might end up in middle management with a decent pay and some savings from the sale in your bank account. That's way, way better than anybody can hope coming directly from university.

And one last tip, because I personally always struggled with knowing what I wanted when I was younger: Define a random goal. Choose one from them, maybe even using a dice. Doesn't matter. A bad specific goal can be changed when you finally know you hate it. A lot of unspecified goals get you nowhere.

Re: Ask HN: Big company approached our stealth startup – what to do?

#35
I have been on both sides of these sorts of negotiations and I have to say most companies are not out to steal your technology or IP. Certainly it has happened, but in all reality it's not easy to steal technology or IP.

For example, let's take the TechForward V Best Buy mentioned by another commenter. TechForward had an interesting but not terribly novel idea. They shared the idea with Best Buy and Best Buy stole it and recreated it with their own mathematicians, actuaries, and programmers. Was what they did wrong? Yes. Was it stealing their code from their repository and then just deploying with the Best Buy logo on it? No, not at all. The point being that if your idea is not really novel and could easily be rebuilt by a team that is bigger, smarter, or well funded, well you are probably in trouble.

With that in mind, the more common situation is that they actually think you are very skilled and would make an interesting addition to their teams, environment, and company. If you are open to an aquihire or joint venture because as you say they "have the right resources to take [y]our product very big very fast", by all means state YOUR desire. Generally when I have asked to see a companies code during due diligence on a product that isn't even released yet, it can be thought of like an extended technical interview. I would be happy 9 times out of 10 to hear from the potential aquihire-ies "Hey, we're in this project $x amount, we'd like an exit like $y with a job at the end that gives us ABCD". It would safe them and the company a ton of time, effort, and money. But, more often than not the startup hides behind a lawyer without making THEIR demands clear (or worse, never really knowing what they want in the end), and then no one ends up very happy.

* None of this is to say you shouldn't have a lawyer, just make sure that your lawyer pushes you towards a clean outcome and not just the infinite legal loop.

Re: Ask HN: Big company approached our stealth startup – what to do?

#36
Be careful when sharing your IP, even to a large company. The size of the company should do nothing to alleviate your concerns about the legitimacy of their goals. A colleague of mine went through a similar interaction with a large corporation who, after going extensive technical diligence, ultimately rejected the deal and released an identical product.

(Somewhat) happy ending: he sued and won.

Re: Ask HN: Big company approached our stealth startup – what to do?

#37
post #3

Here is a suggestion, tell them to state their intentions or go away. Once they state their intentions tell them they have to sign a Memorandum of Understanding about what you're going to talk about and if they walk away it will cost them $X million (pick a number that would be able to resolve your debts and pay off any investors with a slight return). What ever you do, do NOT be lured into thinking they are thinking…

Excellent advice. We lost a lot of time "working with" a large company, including building a detailed demo using part of their platform – and it ended up coming to nothing.

Re: Ask HN: Big company approached our stealth startup – what to do?

#38
Arghh! You should have posted on HN or spoken to an experienced business person or attorney before getting past "Hello". NDA and meetings? No friggin way! No way! Potentially huge mistake. Hopefully you haven't discussed much more than the kind of coffee you like and current weather. I can tell you from (painful) experience, all you are doing is setting yourself up to get screwed.

One of the most valuable things about a program like YC is that it shields young a d very green entrepreneurs from the nasty realities of business and provides highly experienced business people for everything else.

Please tell me you didn't use THEIR NDA, or, even worst, a boilerplate.

You need to seek professioan guidance immediately. Stop talks right now before you say too much or go too far. NDA's can be absolutley worthless.

Re: Ask HN: Big company approached our stealth startup – what to do?

#39
post #3

Here is a suggestion, tell them to state their intentions or go away. Once they state their intentions tell them they have to sign a Memorandum of Understanding about what you're going to talk about and if they walk away it will cost them $X million (pick a number that would be able to resolve your debts and pay off any investors with a slight return). What ever you do, do NOT be lured into thinking they are thinking…

Unfortunately only have one upvote. All the above is true.

Re: Ask HN: Big company approached our stealth startup – what to do?

#40
post #3

Here is a suggestion, tell them to state their intentions or go away. Once they state their intentions tell them they have to sign a Memorandum of Understanding about what you're going to talk about and if they walk away it will cost them $X million (pick a number that would be able to resolve your debts and pay off any investors with a slight return). What ever you do, do NOT be lured into thinking they are thinking…

Excellent advice. We lost a lot of time "working with" a large company, including building a detailed demo using part of their platform – and it ended up coming to nothing.

Right, I get that, but at the same time how can we expect them to buy something or commit cold hard cash when they are pretty much in the dark?
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